Eco PPT Diwakar Sir-1

Law of Demand
Teacher Assistant- Tanveer Kaur

Aastha
Members – Gurleen Kaur Brar
Avika Bansal
Gurwinder Jassal
MEANING OF DEMAND
Demand is the quantity of a good or service that consumers are

willing and able to buy at a specific price and time
Desire
A desire implies a wish to have a commodity or service.
Want
Want is an effective desire, which can be satisified by using a
commodity or services .
Demand
Demand is different from want . Thus demand includes:
• A desire to get a commodity .
• A means to buy it.
• Demand is always at a price.
FEATURES OF DEMAND
1. Difference between Desire and Demand :-There is a difference between desire and
demand as format is only a wish while latter implies that consumer has the
willingness and ability to buy certain commodity in the market at a given price.
2. Relationship between Demand and Price: Demand is always at a price per unit of
time. Without price, the demand for a commodity has no meaning. In fact, every
consumer must know at what price, he is ready to demand a commodity.
3. Demand at a Point of Time: Another feature of demand is that it is always referred at
a given period of time
The Law of Demand
The law of demand states that there is an inverse relation between the price
of a commodity and its quantity demanded, assuming all other factors affecting
demand remain constant. It means that when the price of a good falls, the
demand for the good rises and when price rises, the demand falls.
Assumptions of the Law of Demand
(i) Tastes and preferences of the consumers remain constant.

(ii) (ii) There is no change in income of the buyers.
(iii) Prices of the related goods do not change.
(iv) Consumers do not expect any significant change in the availability of the commodity in
the near future.
Determinents of Individiual Demand
Dxf(Px, P, Y, T, E)
(Here, Dx Quantity demanded of commodity-X

Px = Own price of commodity-X;
P, Price of related goods;
Y- Consumer's income;
T-Consumer's tastes and preferences;
E = Consumer's expectations.)
(1) Own Price of Commodity
(2) Price of Related Goods:

These are of two types:
(i) Substitute Goods: These are the goods which can be substituted for each other, such
as tea and coffee, or ball-pen and ink-pen.
In case of such goods, increase in the price of one causes increase in demand for the other and
decrease in the price of one causes decrease in the demand for the other.
Increase in the price of coffee, for example, will increase the demand for tea-the consumers will shift
from the consumption of coffee to the consumption of tea.
(ii) Complementary Goods:
Complementary goods are those goods which complete the demand for each other, Pen
and ink, or bread and butter may be cited as examples.In case of complementary goods,
a fall in the price of one causes increase in the demand for the other and a rise in the
price of one causes decrease in the demand for the other
For example, when the price of fountain pen rises, its demand will fall; as a result
demand for ink will also fall. Conversely, if the price of fountain pen falls, its demand will
rise; also will rise
Income of the Consumer: Change in the income of the consumer also influences his
demand for different goods.
(4)Tastes and Preferences:

(5) Expectations: If the consumer expects a significant change in the availability of the
concerned commodity in the near future, he may decide to change his present demand for
the commodity.
Determinents of market demand
Market Demand Function

It is expressed as under:
Mkt. Dx = f (Px, Pr, Y, T, E, N, Y₁)
(Here, Mkt. Dx = Market demand for commodity-X;
Px = Own price of commodity-X,
P, = Price of related goods;
Y = Income of the consumers;
T = Tastes and preferences of consumers;
E = Expectations of consumers;
N = Population size/Number of buyers;
Ya = Distribution of income.)
1) Population Size/Number of Buyers:
Demand increases with increase in population and decreases with decrease in

population. Composition of population also affects demand. If composition of
population changes, e.g. female population increases, demand for goods meant
for women will go up.
2) Distribution of Income
Market demand is also influenced by change in the distribution of income in the

society. If income is equitably distributed, there will be more demand.
Individual Demand Curve
Individual demand curve is a curve showing
different quantities of a commodity that one
particular buyer is ready to buy at different possible
prices of the commodity at a point of time. This
figure shows individual demand curve.
Market Demand Curve
Market demand curve is the horizontal summation of the individual demand
curves.
Market demand curve is the horizontal

summation of the individual demand
curves.
■ It shows various quantities of a
commodity that all the buyers in the
market are ready to buy at different
possible prices of the commodityat a
point of time.
■This shows market demand curve.
Why does demand curve slope downwards
The following are some of the causes explaining why demand curves always slope
downwards:
1) The law of diminishing the marginal utility

According to this principle, the marginal utility of a commodity reduces when
the quantity of goods is more. Consequently, when the quantity is more, the prices will
fall and demand will increase. Hence, consumers will demand more goods when prices
are less. This is why the demand curve slopes downwards.
2) Substitution effect
Consumers often classify various commodities as substitutes. For example, many Indian
consumers may substitute coffee and tea with each other for various reasons. When
the price of coffee rises, consumers may switch to buying tea more as it will become
relatively cheaper.
3) Income effect
According to this principle, the real income of people increases when the prices of
commodities reduce. This happens because they spend less in case of falling prices and
end up with more money . With more money, they will, in turn, purchase more and more.
Therefore, the demand increases as prices fall.
4) Population Size/Number of Buyers:

Demand increases with increase in population and decreases with decrease in population.
Composition of population also affects demand. If composition of population changes, e.g.
female population increases, demand for goods meant for women will go up.
5) Different uses-
A good may have several uses.Milk, for example, is used for making curd, cheese, and
butter. If price of milk reduces, it will be put to different. co
Why does demand curve slope upwards
There are a few exceptions to the law of demand, including
Giffen goods
These are inferior goods that have few substitutes and make up a large portion of a
consumer's income. The price of Giffen goods increases as the quantity demanded
increases, which violates the law of demand.
Veblen goods/ articles of distinction
These are luxury goods that indicate the owner's social and economic status. The
price of Veblen goods does not affect demand, and in fact, demand increases as
the price increases.
Necessities
The demand for necessities, like food and healthcare, remains strong even as
prices increase. This is because these goods are essential for human needs.
Change in Income
If the disposable income of a family is increased, then they will buy more goods
even if their price increases. On the other hand, if their disposable income
decreases, they might delay in buying that product even if its price falls.
Extension and contraction of demand are economic terms that refer to
changes in demand for a product or service in response to price changes:
Extention :-When demand increases due to a decrease in price, this is called

expansion or extension of demand.
Contraction :-When demand decreases due to an increase in price, this is called

contraction of demand. Increase in demand
Shift in demand
When more quantity is demanded than before at the same price, it refers to an increase
in demand.
Decrease in demand When less quantity is demanded than before at the same price, it
refers to a decrease in demand.
s
THANK
YOU

Eco PPT Diwakar Sir-1

Uploaded by

Copyright:

Available Formats

Eco PPT Diwakar Sir-1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Eco PPT Diwakar Sir-1

Uploaded by

Copyright:

Available Formats

Law of Demand

Teacher Assistant- Tanveer Kaur

Demand is the quantity of a good or service that consumers are

Assumptions of the Law of Demand

(i) Tastes and preferences of the consumers remain constant.

(Here, Dx Quantity demanded of commodity-X

(2) Price of Related Goods:

(4)Tastes and Preferences:

Determinents of market demand

Market Demand Function

Demand increases with increase in population and decreases with decrease in

Market demand is also influenced by change in the distribution of income in the

Market demand curve is the horizontal

1) The law of diminishing the marginal utility

4) Population Size/Number of Buyers:

There are a few exceptions to the law of demand, including

Extention :-When demand increases due to a decrease in price, this is called

Contraction :-When demand decreases due to an increase in price, this is called

You might also like